Nortel linked to Avaya in merger speculation: Merged company would focus on enterprise, professional services

The enterprise telephony space is ripe for consolidation, a Prudential analyst said in a new report, and there is plenty of appetite in the industry for a takeover of Avaya Inc.
Nortel Networks Ltd., Cisco Systems Inc. and a private equity firm are all reported to be interested in a possible deal with the U.S. telecommunications equipment maker.
A merger between Nortel and Avaya would “create the dominant vendor in North America, Europe, Middle East, Africa and South America and a stronger presence in Asia,” Prudential analyst Inder Singh said in the report on the rumored buyout talks.
“We believe Avaya makes an attractive target due to its large cash balance, solid cash flow and large market presence in enterprise voice,” UBS Senior Analyst Nikos Theodosopoulos said on the heels of the swirling speculation.
“The acquisition of Avaya would be consistent with Nortel’s strategy of increasing focus on enterprise and professional services. Nortel would have a commanding 30% share in enterprise voice and more scale in services. However, Avaya’s 20,000 employees versus Nortel’s 34,000 and the significant product overlap would make such a deal very high in risk given the integration challenges,” he said.
Cisco received less ink from analysts following the rumored talks, but likely could be brought into the fold.
“A combination with Cisco would create the world’s pre-eminent IP telephony vendor, although combinations with either Nortel or Cisco could draw anti-trust scrutiny,” Singh said.
Avaya and Nortel both declined to comment on the reports. Cisco did not immediately respond to requests for comment.
“While we believe a private-equity-led buyout is possible, and has been widely speculated on in recent months, it would not address the needed sector consolidation,” Singh added.
All three companies’ stock was up on the news: Avaya was up nearly 15% to $15.69 while Cisco and Nortel were both up less than 1% in early trading.